Workers’Compensation Reformin California: AB749 of 2002 and AB227 of 2003

Abstract

Effective 1995, California workers’ compensation moved from administered to competitive pricing as part of a reform program directed primarily at lowering employer costs. Premium rates fell drastically under legislative and administrative fiat and a destructive price war followed. Although this proved a boon to employers, by 1999 insurers were going out of business or withdrawing from the market. Meanwhile, benefits had again fallen behind. Against this backdrop, Assembly Bill 749 was enacted, effective 2003. It increased benefits and employer costs while making a number of changes to offset those costs. This approach cannot work. Employer costs will continue to increase as insurers struggle to regain solvency and grapple with increased benefit costs. Additional reform is needed. However, given the State’s $38 billion budgetary shortfall and the gubernatorial recall election, it is unlikely that effective measures will be adopted and implemented before the problem becomes worse.